Success in Succession

Author: Larry Chester, President

Success (or Lack Thereof) in Succession Planning for Businesses
Handing over a business is more than a title change—it’s a financial and operational shift that can make or break a company. Without strong cash management, realistic growth strategies, and proper mentorship, even a successful business can falter.

This case study reveals how a second generation machine shop faced financial instability and how better succession planning—and the right financial guidance—could have changed the outcome.

This was a machine shop on Chicago’s South Side, specializing in heavy equipment repair. They handled long-term projects, sometimes lasting six months to a year, and brought in about $9.7 million in annual sales. It was a second-generation business, and the owner was preparing to pass it on to his son.

Then the bank raised a red flag. They were worried about cash flow—the company was maxing out its credit line and frequently writing checks that bounced. It was clear things were getting off track, and fast.
4 Things to Consider in The Business Succession Planning Process
1)    Profitability: Digging into the Numbers
When cash flow dries up, the first question to ask is: Are we really profitable? Not just overall, but at the project level.

Here’s what we found:

• The biggest problem was labor overruns—projects kept blowing past their estimated costs
• Project estimates were often overly optimistic, especially when it came to labor
• Supervision of employees was loose, and no one was keeping track of time expectations or labor costs.

What could have helped:

• Doing a detailed cost analysis for every completed project to see where estimates missed the mark
• Being more realistic with future estimates, especially labor costs
• Providing tighter supervision and setting clear expectations for employees.

2)    Cash Management: Stop the Bleeding
The company had a serious problem with cash management. They were regularly writing checks without checking the bank balance, leading to frequent overdrafts. This infuriated the bank and shook their confidence in the company’s management.

What could have helped:

• Building a cash flow forecast to project how much money they’d have each week
• Creating a weekly cash requirement report to see how much cash was needed for payables, only cutting checks when funds were available
• Cutting unnecessary expenses like software, office supplies, and random purchases—small costs add up fast.

3)    Chasing the Wrong Business
The owner’s son was ambitious—he wanted to grow the business quickly. He started quoting jobs in the $10–15 million range, well beyond the company’s annual revenue of $9.7 million. While the company had the technical expertise, they couldn’t convince prospects they could handle such large projects. After a year of trying, they hadn’t won a single job. Meanwhile, their core business—the bread-and-butter jobs—was neglected and started to dry up.

What could have helped:

• Sticking to what you know and do well. Focusing on stable, consistent growth.
• Continuing to pursue the core business while gradually expanding into larger projects when the time is right.

4)    Mentoring the Next Generation
The son had an engineering degree and technical skills, but he lacked the financial and managerial experience needed to run the business. His father assumed he’d learn on the job. Unfortunately, when the father remarried and moved away, the son was left to manage everything on his own—without a mentor to guide him.

What could have helped:

• Financial literacy matters. Courses in business finance and accounting would have given the son a stronger foundation to make better business decisions.
• Leadership skills are critical. Basic management training and regular coaching could have helped him learn how to manage people and day-to-day operations.
• Gradual transitions work best. Mentoring the son while giving him more responsibility over time would have eased the transition and helped him grow into the role.

The Role of a CFO: A Trusted Partner and Mentor in Succession Planning

Even in the best of circumstances, running a business is tough. When a new leader isn’t fully prepared, it’s easy to get overwhelmed and make costly mistakes.

This is where an experienced CFO can make a huge difference—not just as a financial expert but also as a mentor. A good CFO brings both financial and managerial experience to the table, helping leaders develop the skills they need to succeed and guiding them through the challenges of running a business.

Because sometimes, learning on the job isn’t the best approach to the results you need.  Sometimes, it’s important to know when to ask for help.  CFO Simplified is here to provide strategic and operational help.  All you have to do is ask.